Overdraft Overkill: The CFPB Gets Ready To Strike Again

Those tricky little devils at the CFPB are at it again. Last week they unveiled prototypes for updated disclosures informing consumers of the right to opt out of overdraft protections for ATM and debit transactions. These aren’t binding but proposed regulations probably aren’t far away.

This is a perfect example of a remedy in search of an illness. The only institution of which I am aware that really thinks the existing opt-out notices need to be updated is the CFPB which has been charged by Congress with investigating overdraft practices.

I’ve always been paranoid when it comes to the CFPB’s overdraft analysis. We have to allow for the possibility that the ultimate goal of the Bureau is to require the affirmative consent of consumers before extending any overdraft protections to them at all.

Call me paranoid but I don’t think these prototypes are much of an improvement over the existing forms in the appendix to Regulation E, unless your goal is to conflate ATM overdraft protection with more general overdraft protections.

The prototypes were released in conjunction with the Bureau’s annual analysis of overdraft activity. The report reveals what it always does, which is that a relatively small group of users disproportionately use overdraft services.

If you have faith in the aggregate commonsense of the American public, this demonstrates that some people choose to use overdrafts because they like to know that their mortgage is going to be paid or that they won’t be embarrassed when they go to pay at Starbucks. To others, this is another example of a predatory financial system taking advantage of a vulnerable population. After all, if the average financial consumer was as smart as the people running the CFPB, they would never avail themselves of overdraft protections.